EPCA interview: INEOS's Tom Crotty advises on increasingly tough trading conditions

24 September 2007 00:00  [Source: ICB]

Ups and downs

European petrochemical players must remember that old rule to stay on top: you have to speculate to accumulate

Andy Brice/London

WITH TRADING conditions becoming increasingly tough in Europe, a solid raw material position and a low-cost base have never been more important, says Tom Crotty, CEO of petrochemical major INEOS Olefins.

It's been a mixed start to the year, filled with stories of surging oil prices, record-breaking naphtha and squeezed margins. Europe's dilapidated crackers are suffering prolonged outages, and maintenance schedules are taking their toll, while competition from Asia and the Middle East is intensifying.

But even with all this doom and gloom, the outlook for European producers is far from bleak, says Crotty.

"Clearly, Europe doesn't have the engine of rapid growth or end-product demand that you find elsewhere and, generally, the markets are pretty stagnant. We've seen a lot of the chemical industry decline in Europe and we've had to adjust," he says. "But we don't believe it's losing its position as a key market we've made some pretty significant commitments to Europe and will continue to do so."

To thrive in Europe, he says, you have to speculate to accumulate. Like so many major players, INEOS is pursuing numerous acquisitions to strengthen its position in advance of any downturn.

Last month, the European Commission approved its planned €290m ($392m) purchase of Borealis' petrochemicals business in Norway, and is yet to rule on the takeover of Norsk Hydro's polymers business. Furthermore, INEOS has invested heavily in its new cracker in Cologne, Germany, which should be on stream next spring. "We wouldn't have done any of this if we didn't believe there was a future in European olefins," he says.

"If you want to be competitive through the downturn, you have to be top quartile. If you've got assets that are under-scaled or you have an uncompetitive raw material position, then you need to do something about it. It's certainly a tough time for greenfield and brownfield investment because of the vagaries of the market - from the cost of materials, such as steel and titanium, through to the availability of contractors, who are significantly overstretched."

No one can predict what will happen to oil prices over the next year, but, in terms of demand, business continues to look strong in Europe. Low oil prices are unlikely for the foreseeable future, he says the big question is the timing and depth of the inevitable downturn.

"I think the outlook for 2008 is actually pretty good and we're now expecting the downturn a little later, in 2009-2010. How deep it will be is very difficult to say the two key drivers will be how much of the new Middle Eastern capacity will actually come on stream when predicted, and what will happen to demand in China."

Whether the June 1 introduction of the much-maligned Reach (Registration, Evaluation and Authorization of Chemicals) legislation puts European firms at any significant disadvantage compared with their Asian and Middle Eastern counterparts, remains to be seen. You just have to accept it's part of doing business in Europe, says Crotty, and so far, the only real impact has been the cost of complying in terms of registering all the products.

People certainly haven't given up on Europe, he says, and with central and eastern European countries continuing to show strong growth, there are plenty of opportunities. "Europe is a ready-made, mature market offering a highly skilled technical workforce. It shouldn't be written off, but I'm more than happy if everybody does and we carry on investing on our own."

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